The Ontario Court of Appeal has called on judges to show restraint in assuming jurisdiction over securities trading on foreign exchanges, in its recent decision Kaynes v BP, PLC, 2014 ONCA 580. While the plaintiffs in this proposed class action resided in Ontario, such residence ultimately was insufficient for the Ontario Superior Court to keep jurisdiction where the issuer was foreign and the trading in question took place on foreign exchanges. The Court of Appeal instead deferred to the jurisdiction of the United States District Court, where parallel proceedings were already underway.
This proposed class action was rooted in allegations that BP made misrepresentations in its public disclosures in relation to the highly publicized 2010 Deep Water Horizon oil spill in the Gulf of Mexico. BP is a United Kingdom ("UK") corporation with no property or business in Canada. BP formerly listed securities on the Toronto Stock Exchange, but those had not traded on any Canadian exchange for about two years before the oil spill occurred. When BP ceased trading in Canada, it undertook to continue sending investor documents to its investors in Canada in the same manner that such documents were required to be sent to its security holders resident in the United States ("US").
The plaintiff, an Ontario resident who purchased BP “American Depository Shares” on the New York Stock Exchange ("NYSE"), asserted the statutory cause of action for secondary market misrepresentation under section 138.3 of Ontario's Securities Act. The proposed class consisted of Canadian residents who acquired BP securities on any exchange.
A proceeding based on the same alleged misrepresentations was already underway in the United States District Court for the Southern District of Texas. Certification was denied in December 2013, but the US plaintiffs were given leave to make a second attempt to establish the necessary elements for certification. Many of the Canadian residents in the proposed Ontario class action fell within the class proposed in the US proceeding.
In Canada, in order for a court to have jurisdiction over a claim, there must exist a “real and substantial connection” between either the defendant or the subject matter of the claim and the forum. The Supreme Court of Canada, in the 2012 decision Club Resorts Ltd. v Van Breda, 2012 SCC 17, established four connecting factors that, if present, give rise to a presumption of a real and substantial connection: 1) the defendant is domiciled or resident in Ontario; 2) the defendant carries on business in Ontario; 3) the claim is for a tort committed in the forum province; and 4) a contract connected with the dispute was made in the forum province. Where one of these presumptive connecting factors is present, the forum in question has jurisdiction and is able to adjudicate on the claim.
Even where a court has jurisdiction, it may choose not to exercise it. Courts have a discretionary power to decline to exercise their jurisdiction on the basis of forum non conveniens: where there is a forum more appropriate to adjudicate on the claim. Underlying the forum non conveniens analysis is the principle of comity – respect for the courts and legal systems of other countries.
The Court of Appeal found that Ontario had jurisdiction in this case. The Court drew on the decision in Moran v Pyle National (Canada) Ltd.,  1 SCR 393, where the Supreme Court of Canada held that a tort grounded in products liability occurred in Saskatchewan – where injury occurred – despite the fact that the defendant had no other ties to Saskatchewan. As the product entered into the normal channels of trade and it was reasonably foreseeable that the product would be used where it was, the forum where the plaintiff suffered damage was entitled to exercise jurisdiction over the foreign defendant. Analogizing this to the present case, Sharpe J.A. held that BP released the documents containing alleged misrepresentations – and thus allegedly committed the statutory tort in question – in Ontario. Although BP released the documents outside of Ontario, it knew it was obliged to provide those documents to its Ontario shareholders. This was sufficient to establish a real and substantial connection to Ontario.
The Court then went on to hold that jurisdiction should have been declined on the basis of forum non conveniens. Comity strongly favoured Ontario declining jurisdiction. The volume of trading in BP securities that had taken place in Canada well before the events at issue had been dwarfed by trading on the NYSE and London exchanges; the Court noted that to take jurisdiction in Ontario on the basis of that negligible trading would allow the “tail to wag the dog.” Both the US and UK approaches to securities law assert jurisdiction on the basis of the exchange where the securities are traded, and the plaintiff's claim significantly depended on the disclosure obligations imposed under US securities law. Ontario's assertion of jurisdiction would “fly in the face” of these foreign legal regimes -- the US regime in particular, which claims exclusive jurisdiction in this type of situation. The fact that the plaintiffs in the proposed class resided in Ontario was insufficient to outweigh these considerations, and the Court of Appeal stayed the action as regarding share purchases on foreign exchanges.
The Court of Appeal's decision in BP does not address the issue arising out of the US Supreme Court's decision in Morrison v National Australia Bank, 561 US 247 (2010), which had held that so-called ‘securities fraud' cases could not be brought in the US pursuant to US securities laws in respect of shares transacted on exchanges foreign to the US. The important feature of the BP decision is that there were proceedings underway in the US, and the US class already included those (including Canadians) who had purchased their shares on the New York Stock Exchange. If BP had involved securities traded in Canada or otherwise outside of the US, it is not clear that the court would have declined jurisdiction.
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